 "GDP growth crawls at 4.7% in Dec quarter")
Gross domestic product (GDP) growth in the third quarter of the current financial year was at a sub-five% level for a seventh straight quarter. It had expanded 4.4% in the third quarter of the previous year.
Economists attributed the decline in pace of growth to weak investment scenario on account of policy uncertainty ahead of the general elections. The outlook for the future, too, appeared bleak, as eight core industries, which have more than one-third weight on the Index of Industrial Production, grew just 1.6% in January, compared with 2.1% in December. Besides, exports continued to expand at a single-digit rate for a third straight month in January. Both mining and manufacturing declined in the three-month period to December - mining contracted 1.6%, while manufacturing was down 1.9%.
In fact, both these sectors have seen a contraction till the third quarter. Agriculture growth, too, slowed to 3.6%, against 4.6% in the previous quarter. However, expansion in the services sector picked up to stand at 7.6% in the October-December period, compared with 5.9% in the previous quarter.
This was mainly on account of a sharp rise in government spending, which led to seven% growth in personal, community and social services in the third quarter, against 4.2% in the second. The rise in government spending could also be gauged from the fact that the Centre's fiscal deficit exceeded the revised estimate of 4.6% of GDP till January itself.
Analysts, as well as government officials, said the GDP numbers were below their expectations. "It was slightly below expectations but I feel the overall growth rate of 4.9% would be achieved this year," said C Rangarajan, chairman of the Prime Minister's Economic Advisory Council.
According to the advance estimates of the Central Statistics Office, GDP is expected to grow by 4.9% in 2013-14, against 4.5% in 2012-13. Rangarajan said there were signs of a pick-up in industries and the government had in the past cleared several projects that would reflect in the fourth quarter. However, he added, 1.5-1.7% growth in manufacturing would be required for that.
Economists did not share Rangarajan's optimism. "These numbers clearly show that attaining a growth rate of 4.9% in 2013-14 is not possible," said Rupa Rege-Nitsure, chief economist, Bank of Baroda.
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For the economy to grow at 4.9%, GDP needs to expand 5.5% in the fourth quarter of 2013-14. If that happens, it will be the highest growth rate since the quarter ended December 2011. Nitsure expected the economic expansion would stand at 4.6-4.7% in 2013-14.
Recently, the International Monetary Fund (IMF) had pegged India's economic growth at 4.6% in 2013-14. Since the economy had grown 4.6% in the first half, it means that IMF expects economic growth to be 4.6% in the second half too. In the first nine months, the economy had risen 4.6%, tad higher than 4.5% in the corresponding period of the previous financial year.
Based on advance estimates, Finance Minister P Chidambaram had said in his interim Budget speech: "Growth in Q2 of 2013-14 has been placed at 4.8% and growth for the whole year has been estimated at 4.9%. This means that growth in Q3 and Q4 of 2013-14 will be at least 5.2%."
Nitsure said investors were awaiting the Lok Sabha elections to be held in April-May before taking decisions. "We do not see any leading indicator at least in the banking sector. Investors are in the wait-and-watch mode ahead of the elections, as there is policy uncertainty looming," she added.
Investment, as shown by a proxy gross fixed capital formation, declined 1.1% in the third quarter, against a growth of 1.8% in the year-ago period. Aditi Nayar, senior economist at ICRA Ratings, said damage to kharif crops due to rains led to lower agricultural growth. "Heavy rainfall over parts of the country in October 2013 caused some damage to standing kharif crops and contributed to a moderation in agricultural growth," she said.
The economist said agricultural growth would bounce back in the fourth quarter due to the "rabi crop effect" but that would not be enough to make up for the "acute contraction" in the industrial segments. Demand in the economy deteriorated, as private final consumption expenditure rose 2.5% in October-December, against 2.9% in the previous quarter. Inflationary pressures deterred consumers from buying products, economists said. "Despite a healthy kharif harvest, domestic demand remained weak, partly on account of a spike in food inflation during the festive season," said Nayar.